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Say It Ain't So, Joe

12:30 PM -- Let me get this Joe Nacchio defense strategy right -- it goes something like this: He was really terrible at what he was doing, therefore he should keep his gazillion dollars and be a free man. (Nacchio, the former CEO of Qwest Communications International Inc. (NYSE: Q), is charged with 42 counts of insider trading, each of which carries a possible sentence of 10 years and a $1 million fine. The trial has been underway in the U.S. District Court in Denver -- see Nacchio Qwoted Qwestionable Qwest Targets.)

That's about it, isn't it? As far as I can tell, the defense strategy will be to show poor old Joe was just plain bad, and ignorant, and didn't listen to his people -- and he was just selling stock to be "prudent" and "diversify." He didn't even want the job, the defense attorney said in the opening statement. In court, Joe even cried and asked for a tissue. I'm not making this stuff up!

Having witnessed the Bernie Ebbers trial, I see some similarities. The "sad old wrong gazillionaire" defense will be back in play: They're just broken-down men with cattle ranches in the Rockies. (See Ebbers Trial: Sex, Drugs & Numbers, Bernie in the Big House, and Ebbers: Of Motels & Men.)

Why is it when a telecom executive's on trial, the defense likes to focus on how wrong and ignorant they were, after the executives spent the majority of their lives convincing people they were right and smart. It's the ultimate hypocrisy.

So where are we with Nacchio? Well first, off, a whole gaggle of turncoats and snitches (who, by the way, as far as I know, are keeping their millions as well), have testified against him, saying he relentlessly pumped up inflated forecasts all while selling stock. (See Qwest Memos Warned of Weakness, Nacchio Advisor Stirs Up the Defense, and Nacchio Qwoted Qwestionable Qwest Targets.)

Much of the defense's testimony is yet to come. I imagine they'll try to focus on how the average person couldn't possibly understand the sophistication and complexity of accounting for an IRU (Indefeasible Rights of Use) swap. Here's the Cliff's Notes version: You swap an asset with your neighbor, and you both get to count it as revenue and make the quarter. Cool! Much as the Ebbers trial focused on accounting minutiae (because it's a great way to put the jury to sleep), Nacchio's attorneys are likely to do the same.

We'll have to see what they got. Will Nacchio take the stand himself? I doubt it. If any lawyer in his right mind learned something from the Bernie trial, it was: DO NOT PUT YOUR CLIENT ON THE STAND. As the Ebbers trial proved, people are smarter than this. Give them some credit -- a jury of peers knows a snake oil salesman when they see 'im.

Has the prosecution proven fraud? To this observer it seems obvious: He was regularly inflating revenue against the advice of most of his key staff, while at the same time selling boatloads of stock. I'm no lawyer, but it should be a slam dunk.

— R. Scott Raynovich, Editor in Chief, Light Reading

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